Ferrexpo announces exchange offer for 2016 Eurobonds

Ferrexpo (FXPO LN) announced on Jan. 19 an exchange offer for its USD 500 mln Eurobonds maturing in April 2016. According to the announcement, bondholders who give their consent for the exchange by the early deadline of Feb. 2 will receive cash consideration of 20% of principal. The remaining 80% will be exchanged for new notes maturing in two parts – 50% on Apr. 7, 2018 and another 50% on Apr. 7, 2019. Ferrexpo offers to increase the coupon rate for the new notes by 2.5pps to 10.375%. The company has also proposed that the minimum participation condition, currently set at 60% of total bonds outstanding (worth USD 300 mln, by our estimates), can be waived or amended.



Ferrexpo told Concorde Capital this morning that the exchange is voluntary and will serve to smoothen Ferrexpo’s debt maturity in case 60-70% of the holders of the existing notes agree to the exchange.



Ferrexpo also released its unaudited 9M14 financials: EBITDA grew 17% yoy to USD 404 mln, net operating cash flow surged 60% yoy to USD 211 mln. In 3Q14, the company drew upon its USD 350 mln PXF facility, which resulted in cash increasing to USD 608 mln from USD 359 mln as of June 2014. Total debt grew 25% during 3Q14 to USD 1,320 mln, though net debt increased just 3% from June to September 2014. The total-debt-to-LTM-EBITDA ratio amounted to 2.3x as of end-3Q14, vs. 2.0x as of end-2013 and a bond covenant of 2.5x.



Roman Topolyuk: Ferrexpo's exchange offer is a surprise, as our projections of the company’s cash flows indicated it would cover its scheduled debt redemptions, though by a relatively thin margin. One of the possible explanations for the move is that the company expects more weakness on the iron ore market, which is already occurring, and is trying to make its debt repayment smoother, thereby avoiding certain gaps.



At the current price of Ferrexpo notes (about 76% of par), accepting the exchange offer does not look like an efficient decision. Holding the 2016 notes till maturity returns a yield of 33.5% (if Ferrexpo repays it smoothly), while bondholders will get an IRR of about 24% in accepting the early exchange offer. We do not rule out that Ferrexpo will propose some better offer conditions after Feb. 2.

Источник: Конкорд Капитал